Entrepreneurship

TOPIC 4 AREA: Business growth and ethics

Sub-topic area Business growth

Unit 7 Factors and indicators of business growth

Key unit competence: To be able to analyse factors that influence business growth.

Many of us dream of owning a computer or tablet.

Discuss the following questions.

1. A tablet is expensive. Why do you think that people want to buy a tablet?

2. Since introducing the tablet, the leading company has sold more than 200 million tablets worldwide.

a) Why do you think that tablets are so popular?

b)Do you think that the company can continue to sell this many tablets in the future?

Growth

There are many different ways to grow.

Every one of us starts to grow as soon as we are conceived. This growth is physical; we grow taller and develop into young men and women.We also grow mentally and emotionally. We learn to believe in our own abilities and to manage challenges in life.

Case study activity

Read the case study ‘Life without limbs’ and answer the questions.

Life without limbs Nick Vujicic is an Australian motivational speaker. A motivational speaker makes speeches to motivate or inspire people. Nick was born without arms and legs. As a child he struggled, but as a young man he began to travel worldwide to talk about how to live with disability and find hope and meaning in life.Today, Nick is the director of an organisation called ‘Life without limbs’.

Questions

1. Describe some of Nick’s challenges as a child.

2. As a young man, Nick grew mentally and emotionally. How do you think this helped him to manage his challenges?

3. Which skills and talents do you think Nick used to start his organisation, Life without limbs?

Two types of business growth

A business can grow in two ways.

Firstly, a business can sell more products and services. Often this means that the business needs to hire more people, move to larger premises or invest in a delivery van. This growth is therefore easy to see.

A business can grow by selling more products.

The second way that a business can grow is by decreasing costs. A business aims to make a profit. Profit is the difference between the income of the business and the costs. If the business can decrease the costs, then the profit increases. This is also business growth.

A business can grow by decreasing costs and thereby increasing profits.

Read the examples of business growth below.

Then answer the questions.

A. Kamana owns a restaurant in Remera. He has found a new supplier who sells vegetables at a lower cost.

B.Jabo sells pens, paper and other office supplies to companies in Kigali. Recently, a large corporation ordered a large amount of supplies from Jabo’s business.

C. Lemigo Hotel in Kigali recently designed a new website. Yesterday, the hotel signed an agreement with a tour company from China.

1. Describe the type of business growth in each example.

2. What do you think the business owner did to grow each business? Make suggestions for actions that each business owner took.

If businesses in Rwanda produce more goods and services this year than they did last year, we say that the economy of Rwanda has grown.In the news, we often hear about events that affect the economy of Rwanda. If we have bad weather, for example, this affects the farmers’ crops.For the past twenty years, Rwanda has been a peaceful country.

This means that more tourists come to visit Rwanda. Businesses that sell products and services to tourists therefore also grow.It is always easier for a business to grow when an economy grows, but many businesses can still be successful even if the economy is not growing.

In a discussion, find examples of businesses that can grow even when the economy is not growing.

There are many different reasons for business growth.Business goals To grow,

a business owner needs to set the objectives for growth. This means that the business owner must set goals.To set an objective, you need to describe how you plan to grow. Then you need to follow your plan. Make sure that your plan is clear and easy to follow.

Business location

We can classify a business as agriculture, manufacture, trading and/or service.

Each of these business types needs a specific type of location.

• An agriculture business is located in a rural area. When the roads to markets in the city are good, it is easier for the farmer to transport crops.

• A manufacturing business must be located close to the raw materials. For example, a business that makes tea should be close to tea plantations. A manufacturing business must also be close to roads or trains so that it can transport its products to retail businesses in the cities.

• A trading or service business needs to be close to customers. A busy market or a shopping mall, for example, is a good location for a hair dresser or a craft shop. It is also important to be near the type of customer who wants to buy your product. If you are selling gifts to tourists, your shop should be in an area that tourists visit.

Business support services

Every business needs products and services from other businesses and from the government. A business needs the government to provide infrastructure such as roads and airports.A business also needs banks, accounting services and repairs to machinery.

Case study activity

Read the case study ‘Quality teas from Africa to the world’. In the case study, identify the following types of businesses: agriculture, manufacture and trading.

Quality teas from Africa to the world

The Excellent Tea Company is a business based in New York in the United States of America. The company imports tea from Rwanda. Farmers grow tea in the Virunga area.

A cooperative sells the tea to The Excellent Tea Company. The tea is sent to Kigali where it is flown to the business in New York. The Excellent Tea Company is a trading business that sells the tea to shops in the United States.

Questions

1. Where is each type of business located?

2. Why are these locations suited for each business type?

3. Identify factors that make The Excellent Tea Company successful.

Kamana wants to sell hot meat stew with ugali from a small café in Kigali. Help him to find a suitable location for his new business by answering his questions.

Bwiza owns a salon where she offers beauty treatments.

1. What type of business is a beauty salon?

2. Make a list of support services that Bwiza needs.

3. Bwiza wants to open a new branch. Select a suitable area for her new salon in your community. Explain your choice.

There are many different factors that can limit business growth. The entrepreneur can address many of these factors.

Customer relationships

Every business needs customers. A business needs to sell products or services to customers to make a profit. The relationship between a business and its customers is therefore very important.

Customers and social media

The Internet can be used to develop a good reputation for a business, but it is also a tool that customers can use if they had a bad experience with a business. In the past, customers would share bad experiences with their friends and family members. Today, unhappy customers often use social media such as Facebook and Twitter to share their opinions. The business gets a bad reputation if many people share their negative experiences in this way.

1. In groups, discuss an example where a customer shared a bad experience with a business using social media. How did this change your view of the business?

2. Design a poster to encourage employees to serve customers well.

Management of stock

A manufacturing business and a retail business need to keep track of raw materials and the stock of items for resale.If a manufacturing business runs out of a raw materials, then it cannot produce any items.Some businesses need to keep track of many items.

For example, if a manufacturing business that makes bicycles has wheels and frames in the storeroom but no handlebars, then the business cannot make a bicycle.Management of stock is also important to ensure that there is no theft.

As a class, visit a business in your community that has a large amount of stock. Ask the business owner to explain how the business controls its stock.

Keza sells cleaning products from a retail shop.

Her stock includes dish washing liquid, carpet cleaner, toilet cleaner and many other items. Keza finds it hard to keep control of her stock.

1. Explain to Keza why it is important to keep control of her stock.

2. Suggest a method that Keza can use to make sure that she always has enough stock in her shop.

3. What can Keza do with the stock of products that do not sell well?

Management of business finance

It is very important to control the management of money in a business. Misuse of money makes it very difficult for a business to succeed.Misuse of money happens when the owner uses business money for private purposes

Find newspaper articles about businesses in your community that have failed. Try to find out why each business failed.Make a presentation to the class where you:

• explain why the business failed

• make suggestions about how the business could have overcome the obstacles that it faced.

When we want to assess if a business is successful we can use indicators.A farmer who wants to know if his coffee beans are ready to be harvested can pick and check a few beans. A biologist who wants to know if a natural environment is healthy can check the number of a few animal and plant species. In business, we also use indicators to check if the business is successful.

Sales volume

One of the ways to grow a business is to increase the volume of sales. We can compare how much a business sold last year to how much it sells this year.A business can increase its sales volume by:

• selling more products

• selling new products.

Business profit

A business can increase profit by either increasing sales volume or by reducing costs. To see if a business is successful, we can compare the profit of the business in previous years to the profit of the business this year.

Business branches

A growing business often opens new branches.

1. a) Select and research one of these businesses:

A. Great Lakes Energy

B. RwandAir

C. Bralirwa Brewery

D. I & M Bank

b)Assess the success of the business by selecting an indicator for growth and success.

2. Arrange a visit to a local business. Ask the business owner to describe which indicators he or she uses to assess the success and growth of the business.

Indicators are also useful for predicting business failure.A coffee farmer checks beans for diseases such as mites and scale. In the same way, a biologist also checks for signs of problems in a natural environment.In a business, we can use certain indicators to warn us of business failure.

Business losses

The profit of many businesses changes from year to year. When a business has a loss (when costs are higher than income), this is a sign of failure. If the losses continue to increase, the business owner needs to carefully calculate costs and check if the business is still viable (can succeed).

Empty stock

A manufacturing business that has little or no raw materials cannot make products to sell. A retail business that has no stock has no products to sell. Stock levels are therefore an important indicator of business success or failure.

Low sales

Sales volume decreases when there are fewer customers, or when there are the same number of customers but they spend less. Low sales are an important indicator of business failure.

As an entrepreneur, you need to assess the reason for decreasing sales. For example, does a competitor sell the same products cheaper? Is your quality poor? Or is your product no longer fashionable?

Gisa works with his father in his father’s business ‘Kigali by Fax’. The business sells fax machines to businesses in Rwanda. For the past few years, their sales volume has decreased. Gisa says that people today send emails rather than faxes. He suggests that they should open an Internet café instead.

1. Explain how to use an indicator to show signs of business failure.

2. Gisa uses sales volume as an indicator. Suggest two other indicators that he can use.

3. Do you think that Gisa’s father should take Gisa’s advice? Explain your answer.

4. Suggest to Gisa and his father how they can use their skills and knowledge from the current business to make sure that they have a successful business in the future.